In this post I will address the topic from a practical standpoint, in chronological order, based on “Common Practice”. This post is written from the standpoint of “common practice” in the Seattle area, where Title and Escrow are two separate functions, and not combined as they are in “settlement” vs. “escrow” areas. Areas that have “a settlement or ‘event’ closing”, operate differently. After reading this, you will likely feel that something should change. So posting on this topic is a great way to influence change, a side benefit to blogging in “transparent” fashion.
Nothing changes until its weaknesses are illuminated by discussion…so here goes.
1) The first thing an owner does (or the listing agent does on behalf of the owner) is contact a Title Company. Most often, this is done BEFORE the property is listed for sale.
Most Title companies offer three levels of information/service:
a ) a “listing packet”
b) “Preliminary Title”
c) A full Title Insurance Policy
Often an agent will order a “listing packet” upon first getting a request to visit an owner at their home to discuss the property being listed for sale. This level of information provides a basic legal description, a plat map, and some basic and general info regarding the property. Some companies provide sale comps, but most experienced agents don’t rely on the Title Company for “comps” and do their own. Personally I tell a Title Company not to waste their time or the paper producing comps for me. I never find them to be useful, or as useful as the ones I do myself.
While in theory “the seller” orders Title as “common practice”, and By Law the Buyer is supposed to choose the Title Company (see RESPA below), most often the agent has already been in contact with a Title Company before they even meet the seller.
2) “Preliminary Title” is usually ordered by the agent as soon as they know that “they have the listing”. Sometimes I do this as a first step, if I know the owners well enough to know that I will be listing the property before I go to the first meeting to discuss getting the property ready for market. That gives me more info up front than the “listing packet” and saves the Title Company some time, and possibly a few trees, if we get “hard copies” or print out the info.
When an agent lists a property, part of the intitial input into the mls system is a field question that asks “Has Preliminary Title been ordered?” Then there is a drop down box where you enter “Yes” or “No”. The presumption is that the answer should be “YES” and often the Title Order # is included in the Agent Remarks section “Title Company is X order #X”. To comply with RESPA, the buyer is supposed to choose the Title company. So possibly this provision in the mls listing input should be eliminated. You be the judge. For now, that’s how it is.
In order to write an offer on a property, the agent for the buyer needs to access the legal description. As soon as there is “mutual acceptance” of the contract, the lender needs to access the Title Order by company and Title Order #. So without regard to the Insurance aspects of Title Insurance, the process of involving a specific Title Company happens long before there is a need to actually insure the property with regard to Title Issues. At time of offer, the buyer has the option to choose Title and Escrow as part of the offer and is NOT obligated by law or contract to use the one who provided the owner and listing agent with services to date. Still common practice does not follow that thinking…or at least hasn’t do date. Maybe the people reading ths post will change that in the future.
3) Title Insurance Policy – Now we get into who pays and who chooses. Up to this point, no one pays. If the property never gets “signed around” and escrow is never opened, the Title Company has provided all of the services for free. The title Company up to this point, provided these FREE services to the listing agent. The balance is that the agent most often uses the same Title Company all of the time or most of the time, and so there is an offset of paid for services against the free services. If owners ordered and paid for the services up to this point (vs. the agent), there would likely be a cost for the first stages that are currently offered free of charge if the house never sells.
Here in the Seattle Area we have OWNER’S Title and LENDER’S Title. Owner’s Title Insurance is the manner in which an owner conveys “clear title” to the buyer. The cost is based on the Sale Price and is paid for by the seller. Lender’s Title is all about the buyer. If it is a cash buyer, there is no Lender’s Title. If the purchase is financed, then the buyer pays for that portion of the Title Insurance that insures the Lender and is based on the loan amount vs. the Sale Price.
RESPA – Basically RESPA provides that “the owner” gets to choose Title. In this post I refer to “the owner” as the person who owns the property prior to closing. Common pactice here is that the owner at time of listing the property “orders title”, at least Preliminary Title. RESPA (Real Estate Settlement and Procedures Act) “entitles the homeowner to choose a title insurance company when purchasing or refinancing…” and gives that right to the BUYER as “owner” and not the seller as owner. In fact any seller who mandates the Title Company to the buyer is subject to a penalty of 3 times the cost of the Title Insurance. This makes perfect sense in settlement States, but is a bit odd in in escrow States. But it is what it is. Back to common practice.
It would seem that the seller should CHOOSE and pay for Owner’s Title and the Buyer should CHOOSE and pay for Lender’s Title, simply due to the fact that the owner and listing agent need to review title information long before the buyer is a known entity. Practical application and the law do not seem to be in sync here. Most often the ACTUAL title policy is an automatic via the company that offered Preliminary Title. To “perfect” the system, there should be a separate administrative charge for the Listing Packet and Preliminary Title that is paid by the seller, and a Buyer Election to choose the Title Insuror, without regard to who provided the a) and b) services. My opinion, of course.
Up to this point, the agent needs to find the things the owner doesn’t often know about the property. Or the agent needs to prove that what the owner BELIEVES is so, is accurate, which is not often the case. We as listing agents are using Title Companies to ascertain liens, easements, encroachments, etc.. We don’t want to find out that the owner is incorrect AFTER the property is in escrow. Often the owner thinks they own the driveway, when they do not. By being in contact with the Title Company in advance of listing the property, we often find out that both owners own the driveway. Sometimes and often four feet each. In my most recent study of a soon to be listed property, the ownership of the driveway is 4 1/2 feet vs. 3 1/2 feet…odd but true. Most owners do not know these things, or worse yet are WRONG about these things. So in my book, misrepresenting the property (IMNSHO) is worse than worrying about waiting for the buyer to be a known factor, before consulting with a Title company.
Still it is the buyer’s right, under RESPA to choose a different Title Company later in the process, so the common practice of Preliminary Title moving straight to an ACTUAL POLICY, should not happen as it does, without the buyer’s direct election of Title Company. From my standpoint this is MORE important in areas where the Title Company is also the Closing Agent…so let’s move on to “choosing escrow”, so you can see why I feel this way.
4) CHOOSING AN ESCROW COMPANY/CLOSING AGENT. While the Listing Agent may have in the agent remarks field “Title Company X Order # X and Escrow TO BE X or Y”, the escrow company is not utilized or chosen (most times) in advance of the buyer’s offer. Only Title services are needed prior to offer (with some exceptions).
Most reasonable people agree with me 🙂 that Title should be ordered by the Seller and Escrow should be chosen by the Buyer.
This post is probably going to open a big can of worms, but in the interest of Transparency, the resultant fallout is of value. Most buyers and sellers get “whooshed” through the whole and very important process of Title and Escrow services. So talking about it is important, even if we all don’t agree.
It is important to note that NEVER in the 18 years I’ve been in this business have I seen anyone choosing title and escrow services based on cost (or home inspection, or anything important to the process). Given the relatively minor differences in cost, the small amount you save is not worth the anguish you might later face by having chosen based on cost vs. competency.
When there are five offers on a property, well making a big deal of buyer choosing escrow may not be appropriate. No one wants to lose the house fighting over who is handling the escrow. But often, even in multiple offer situations, the listing agent will understand that the buyr should chooses escrow, and Title Company too if they want to. The problem with the RESPA rule is that if the buyer makes a big stink over who chooses the Title Company in a multiple offer situation at time of offer, they may not get the house. No one can prove that they didn’t get the house because of the battle over Title Company. So for all practical purposes, seller chooses “all services” when there are multiple offers often wins, because of market conditions.
But with the market changing, it is important to highlight that common practice over who chooses should CHANGE when there is only one buyer in the room, and the “common practice” of a strong Seller’s Market should not continue into a balanced or buyer’s market. That is one of the reasons I am writing this post at this time. My biggest criticism of “common practice” is that agents do not make enough effort to swing it back and forth to match “market conditions”.
Common Practice should reflect the actual needs of the buyer and the seller and change as market conditions dictate, and not simply be “the way we have always done it”.
We’re testing the new back end features with this, I think the first post since the changes. Please bear with us if there are any irregularities. Thank you.
ARDELL, there is a fee for preliminary titles. A “preliminary title” also called a TBD title is an actual title commitment with a fee due for the work performed. If the title is not closed on (i.e. it’s re-directed by the selling agent), then there is a cancellation fee due.
Technically, the title insurance policy is not issued until after closing. It is still the same “preliminary title commitment” during a transaction except the buyer and lender are plugged into the report.
Hi Ardell
The reason why the owner’s title policy and the lender’s title policy come from the same title company is because companies offer a discount when the policies are issued simutaneously; less work involved.
Might be more expensive to split them apart.
Likewise, many title insurance companies offer discount(s) when title AND escrow are done at the same company.
There’s actually nothing free from Washington state title companies anymore…at least there’s not suppose to be. There is a strict $25 allowance. There are fees for “property information” request (which is less than a title commitment)…once an agent goes beyond the $25 allowed limit, they are supposed to billed for the services.
Huge fines have been handed down to the biggest offenders: http://www.insurance.wa.gov/news/news_release_content/2142-report_title3.pdf
There’s another practical reason why listing agents order preliminary title before the home is sold: Real estate brokers require that the legal description is available for all to review, and it is to be attached to the listing agreement. In addition, real estate brokers require that their agents confirm that the person who has signed the listing agreement is actually in title with the ability to sell and convey the real property.
We had a couple of title insurance claims in this area where the renter posed as the homeowner and signed the listing agreement.
Now if the homebuyer wanted to switch title insurance companies, the first title company could charge their customary “cancellation fee.” The buyer could decide that switching companies is worth paying the cancellation fee, normally around $50 plus tax.
The P&S agreement as revised last year provides that the buyer is to pay the cancellation fee on preliminary title if they change from the company selected by the seller. This deals with the issue of the preliminary not being free.
Also, Rhonda, there’s another difference between preliminary title and the actual title policy–many of the exceptions are removed–notably the mortgage debt of the seller and other monetary lien items.
Also, many of the listing packages don’t include a proper legal description. They are sort of worthless so I don’t even ask for them. I just get the preliminary far enough in advance that I have what I need.
Perhaps some of the escrows can answer this. When does the title company or bank pay the lien items directly? I’ve heard some escrows make mention of that, which seems odd. I always thought they handled all the funds.
Jillayne wrote: “There’s another practical reason why listing agents order preliminary title before the home is sold: Real estate brokers require that the legal description is available for all to review, and it is to be attached to the listing agreement.”
I was surprised to learn this, but technically you can still have a valid listing agreement without a valid legal. Annie Fitzsimmons pointed that out to me. But the P&S agreement needs a valid legal or you don’t have a contract.
BTW, Jillayne, you forgot something obvious (to you anyway, and I think you’ll go duh when you hear the two words). Another reason agents need the title report prior to listing is to make sure they aren’t in an unknown SHORT SALE situation. In fact, that’s really the main reason they need it, IMHO.
Kary, in my past life, I wrote title policies… 😉
The reason why the exceptions are moved is because the underlying mortgages were paid off (hopefully). I just had a refinance where the title commitment exposed that the previous lender on the home owners last refi still had the mortgage that was not properly reconveyed. Stuff happens…when consumers bark at what a waste title is, they have no idea of actually what a bargin it can be compared to other types of insurance. Anyhow…that’s another topic for another post.
Are you asking about when a claim is paid? “When does the title company or bank pay the lien items directly?”
Rhonda, I’ve seen a couple of situations where the loan wasn’t paid off, two of them were HELOCs where the owner used the loan again and the deed of trust was never reconveyed.
That’s why I was asking about HOW a lien is paid off. Does the lending bank pay it directly, or do they pay the full loan amount to escrow? If they pay it directly, would it be different if the title company and escrow company are the same?
ARDELL, this is a great post. I did have a buyer a few months ago who asked me, when were reviewing the Good Faith Estimate together “Who get’s to pick the title and escrow?” I told him, typically the real estate agents decide…his response, “if it’s insuring me and if I’m paying for both title and escrow, why do they get to choose”
My response was pretty much like your post… agents use the prelim (yadda yadda) and with escrow, we all have our relationships and want the transaction to go smoothly. An unknown escrow officer can really have more of negative impact than people can imagine.
My hubby and I were just discussing this weekend, if consumers were to select their own escrow and title company, where would they begin? Would it just be by cost and then (with escrow more than title) what are the risk? Cheapest is not always the best…it could mean your transaction doesn’t record.
Kary, if the loan was supposed to be paid off, the escrow company facilitates that from the proceeds of the new loan. It shouldn’t matter if the escrow company is also a title company. (I’ll defer to Tim because I only worked in escrow for a title company–never as an independent).
We switched title companies for one of our buyers last year. The title company selected by the seller had ruined our Christmas the year before, refusing to remove an item they agreed was not a lien due to the homestead exemption, without an indemnification agreement. Dealing with that kept up from going out of town. The next Christmas we pulled the transaction from them, which probably cost them almost half what paying off the lien would have cost on the first transaction.
When a title company won’t stand up an honor a preliminary commitment on a tiny item, I don’t really want them insuring my buyers for anything.
Rhonda, that’s what I thought, but I’ve heard some say they only get the balance of the funds to disburse (e.g. the commissions and owner funds). Seemed odd.
Hi Kary,
Regarding comment 7, I do not advise real estate agents to order a preliminary title BEFORE they list the home.
That’s not a good idea. What if the homeowner….chooses another agent to list with, decides not to list, what if the Realtor decides he/she does not want this listing?
Now we have an open preliminary title report that’s not going to be used. Not good karma with your title insurance company. As Ardell pointed out, lots of work up front and no revenue. In the future, this will mean that agents will be asked to (!!Imagine the shock! The Horror!) PAY for that preliminary title report up front, in advance.
Kary, sounds like you know there IS a difference between title companies. I think a good TO is everything. There are so many who are textbook and few who can (and will) evaluate risk.
I’d strongly disagree with that practice due to the risk of a short sale or improper party. It’s much better to get that stuff out of the way before you bother listing.
Also, the title report can give you some good questions to ask if you’re competing for the listing. It can show you’re a bit more on top of your game than the other agents you might be competing with.
If you don’t get the listing you just have to pay the cancellation fee. That’s much better than wasting time on a listing you don’t want because the seller didn’t tell you all the facts. As a matter of fact, I’d pay about 1,000 cancellation fees before risking that situation occurring. As mentioned in the other thread on commissions, the agent has financial risk if there’s an undisclosed short sale situation, which would be the case in an unknown short sale situation.
BTW, if you know what you’re doing you could pull a Realist report off the MLS, and then search 2 of these three sites (depending on what county you’re in):
King County: http://www.metrokc.gov/recelec/records/
Pierce County: http://hartweb.piercecountywa.org/
Snohomish County: http://198.238.192.100/
Statewide: http://dw.courts.wa.gov/index.cfm?fa=home.home
This is prone to error, however, and won’t find everything (certain strange liens, bankruptcies, etc.). But if I’m in a pinch, I’ll do it. It’s actually not a bad idea to do it in every case, because there is the possibility of finding something the title company missed!
i choose title and escrow. there are three or four title companies with deep enough pockets to cover a claim, i use one of them. talon gets my business because they have an international trade division.
for escrow i use John Wagner Escrow because he runs a competent shop. there are other escrow companies that are also competent so i do interview an escrow company recommened by some one else.
whatever is in the buyer and sellers mutual best interest is what works best for me.
i also ask for a preliminary title report within the first week of listing. if there’s a question then yes i pull the report before listing.
“ARDELL, this is a great post.”
Thanks Rhonda. I don’t usually ignore the comments, but I pretty much said everything I have to say in the post itself. I just thought it would be a good resource post for buyers and sellers, and I appreciate all the comments. They definitely add a lot for readers who need a general idea of how the process functions.
No problem, ARDELL…I assumed you were busy. I do hope that buyers learn from this post that if they redirect the prelim (or allow their selling agent to) they may get a title cancellation fee mailed to them. Title companies are at risk of significant fines from the insurance commissioner if they exceed the $25 amount and a cancellation fee is double that.
Dave wrote: “i also ask for a preliminary title report within the first week of listing. if there’s a question then yes i pull the report before listing.”
Dave, I’ll say the same thing to you that I say to the people who have never bought real estate in their life, and think they don’t need an agent. You don’t know what you don’t know.
Until you pull that title report (or do the alternative searches I suggested if you know how), you don’t know what’s against title. And sometimes, it might surprise you who might have an issue.
i also choose a title rep who can read a title report.
escrow is another mine field. incompetent escrow agents have gotten to be the norm with the increased volume.
Ardell,
Good post and important topic. I agree with #7, Kary. As soon I know I am getting the listing, I order preliminary title. But Jillayne, you are correct, I would not order title until I knew would be representing the seller.
As everyone has mentioned here, there’s a whole host of issues that can come up if title is not reviewed prior to going on the market. What if the seller is not able to clear title because of a lien, encroachment, etc.? It makes so much more sense to have the information before you go “live” to the public.
I listed a home recently in which the home owner and the neighbor had agreed to a boundary change because of a rockery and some fencing. The paperwork between the parties had been notarized but never recorded on title. I sent the original paperwork to title company and it’s now recorded on title, thus eliminating an issue that did not need to be an issue.
Part of our job as agents is to eliminate problems and objections. This is one of the reasons people hire agents to represent them. If I don’t order the title before the home goes on the market, I feel I’m doing a disservice to the seller and the buyer, possibly creating issues that don’t need to be. Clearing the problem before going on the market is a big part of our job.
Rhonda said:
“Technically, the title insurance policy is not issued until after closing. It is still the same “preliminary title commitment
Another reason to order the prelim title before the property goes on market is if there are title issues, you need to know about them, and need to figure out the time frame for resolving them early.
Interest rates are very volatile right now, and a buyers loan lock could well expire if there were title problems not discovered early enough.
As usual, great post Ardell.
May I give the consumer persepctive? I got burned on escrow when we sold our condo in Bellevue, and that experience taught me to pay attention to who does escrow on a transaction. The story is that we sold our condo to a real estate agent who was going to use it as an investment property. Naturally, she picked the escrow company, and they were awful. They delayed our closing for no other ascertainable reason except that they hadn’t gotten around to it yet; never returned our phone calls; and I caught mistakes on the settlement statement. Hell, i think they even spelled my name wrong.
When we sold our last home, we told our listing agent about this experience and that we would like to pick escrow; the buyers didn’t care, and we had a great closing experience. Escrow was timely, accurate, and answered all of my questions. The best part is that we immediately purchased another home and used the same company for escrow, so they were able to hold the proceeds from the sale and transfer them to the purchase. Everything worked as planned.
Moral of the story is not all escrow companies are created equal, but as a consumer, you don’t really find this out until you have a bad experience.
the preliminary title report should be reviewed. the title rep who ran preliminary title reports for me changed companies a couple of times over twenty years but it was worth it to have her as a resource. in the interview process for a new rep a few years ago i was caught more than a couple of times with issues that i’m not qualified to see. i was also surprised to find title reps who have been in the business for many years unable or unwilling to comment on irregularities.
after the mortar and bricks, the mortgage and title, are all you’ve got in a transaction. you pay a lot for this insurance policy, you should get service when you purchase it.
escrow is a joke. soooo many people entered the escrow business it’s amazing to me. escrow needs to be watched like a hawk. i do use John Wagner and he is an attorney. he has been a fantastic resource to my buyers and sellers.
an escrow agent can cost your buyer or seller thousands of dollars. both buying and selling agent need to know an escrow company or agent can get the job done. if i don’t know the company or agent i go to see them. i usually go to my clients closing and do review the closing documents.
it’s a part of my job.
David is right about John Wagner Escrow, in Seattle, they do an excellent job.
I always have qualms when I am dealing with an unknown escrow company. If the other agent is experienced and assures me they deal regularly with a particular escrow company, I find that reassuring & helpful, but I’m still going to keep a close watch on things. It’s another story however, if a buyer wants to choose an escrow company that neither me nor the buyer’s agent is familiar with; so I’d want to question that escrow pretty well before my client agrees that the transaction will be handled there. Inept escrow is inexcuseable, but it can and does happen.
And, an unknown company may be absolutely wonderful, but sometimes you just get that ‘feeling’ that things aren’t so peachy. Talking the talk is important, but more important is getting the job done properly.
Funny, one of the worst escrow experiences I and one of my clients had was with the escrow firm noted in 27,28. We didn’t work with the attorney directly but his staff was terrible. I’ve got several others that I prefer, such as Jamie Kondo at Cobalt Escrow on Eastlake. She’s fantastic. I also miss having Julee Pratt in the business, she moved on to work for a legal firm that represents condo interests, recently leaving The Escrow Source, who still employ several great closers.
I will say that having long time relationships with title reviewers is essential. I’ve had many good experiences with assistance from Chicago Title as well as Ticor, particularly when oddball questions have arisen – and they certainly do come up.
yes the staff has issues. my lender doesn’t like them either.
they are competent. they have been there for a very long time. at the end of the day the over all experience may be different than some people are used to. i have been told that there may be some abrupt comments made about a file.
from my perspective i prefer to get the job done right.
i also like Chicago and used them for many years, the title rep i recommend works for them. i currently use Talon because my office has some control there. they also have an international division that offers a variety of language skills.
it may also be why John’s office treats me well. we have a working relationship and i think that’s what also makes a difference.
Marc, you’re 100% correct…just more tech then I was going to go. 🙂
David Losh,
Just curious, what do you mean that your office has “some control” of Talon?
Holly,
Thanks for the personal story. I find that escrow is often bad for the buyer if you use the seller’s choice of escrow, even if the same company is good for their regular agents.
When you use the seller’s escrow, the seller is the one “in the loop”. If you use your agent’s escrow, you become “in the loop”. Just how it is. That is why we like to use the same people. They could be great for me, because I use them all the time and freak out a lot 🙂 and yet bad for someone else. People don’t like to see me ticked off…and I have a big mouth.
So every company is good for someone…just a matter of if that someone is you or not,. W when they get busy,they keep their regulars happier. Just like a waitress with regular customers vs. never saw that guy before. If someone has to get pushed back, it’s the “stranger”.
You can mention that escrow company and the closer BTW if they are local. No reason to not reward them for their good service to you. Tell us who it was if it is Seattle area.
I use John Wagner when I want “an attorney based escrow” and need documents like power of attorney reviewed prior to listing the property. I have always had good luck with them, though only use them on special occasion.
as i said Talon has an International Division. they speak Korean, Chinese, Viet Namese, Spanish, other langues and dialects at the escrow side so it translates to title as well. many of my clients are Asian. our Broker is Viet Namese. we send a good amount of business to Talon as a service to our clients.
so if your asking if there is a financial interest it’s purely a service with mutual respect.
i’m always open to other resources, so if you know of a title or escrow that offers a wide range of language skills i’m always interested.
Talon is my preferred vendor as well, it was how you phrased that you had “some control” of Talon that sparked my interest. 🙂 Guess I could have video’d that comment!
yes you could have, i on the other hand can’t figure it out. it must be a mac thing.
i returned here however to clarify that most of the people i work with are hispanic. so by referring my clients title and escrow resources that speaks spanish it makes things much easier.
Talon has control over me in that respect as well. so i’m always looking for resources in languages other than english.
Ardell @ 33 — we used the Fidelity Escrow office on E. Madison. As you mentioned, it probably helped that our agent is one of their regulars, but still, the high level of service made us feel comfortable both as a seller and a buyer. And the word from the couple that bought our old house is that they thought the service was top notch as well.